UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





FORM 10-Q





x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934





For the quarterly period ended December 31, 2012





 ̈
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE EXCHANGE ACT OF 1934





Commission File Number 333-152160





IMPERIAL RESOURCES, INC.


(Exact name of registrant as specified in its charter)





Nevada
83-0512922(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)








106 E. 6th St. Suite 900, Austin, TX 78701(Address of principal executive offices)





(512) 332-5740(Registrant’s telephone number)





(Former name, former address and former fiscal year, if changed since last report)





Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes  ̈ No





Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). xYes  ̈ No





Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.





 ̈
Large accelerated filer
 ̈
Accelerated filer
 ̈
Non-accelerated filer

(Do not check if smaller

reporting company)
x
Smaller Reporting company





Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  ̈ Yes x No





Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: February 14, 2013: 43,476,197 common shares


1







INDEXPage No.(s)PART I - FINANCIAL INFORMATIONItem 1.
Financial Statements
3Consolidated Balance Sheets as of December 31, 2012 (unaudited) and March 31, 2012
4Consolidated Statements of Operations for the three and nine months ended December 31, 2012 and 2011 (unaudited)
5Consolidated Statements of Cash Flows for the three and nine months ended December 31, 2012 and 2011 (unaudited)
6Notes to Consolidated Financial Statements
7 to 14Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
15Item 3.
Quantitative and Qualitative Disclosures About Market Risk
21Item 4.
Controls and Procedures
21PART II - OTHER INFORMATIONItem 1.
Legal Proceedings
21Item 1A.
Risk Factors
21Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
21Item 3.
Defaults Upon Senior Securities
22Item 4.
Mine Safety Disclosures
22Item 5.
Other Information
22Item 6.
Exhibits
22SIGNATURES
23




2








PART I—FINANCIAL INFORMATION





ITEM 1. FINANCIAL STATEMENTS





NOTE: These consolidated financial statements reflect the Company’s Consolidated Balance Sheets at December 31, 2012 (unaudited) and March 31, 2012, the unaudited Consolidated Statements of Operations for the three and nine months ended December, 2012 and 2011 and unaudited Consolidated Statements of Cash Flows for the nine months ended December 31, 2012 and 2011.




3





IMPERIAL RESOURCES, INC. AND SUBSIDIARIES


CONSOLIDATED BALANCE SHEETS





December 31, 2012


March 31, 2012(Unaudited)
(Audited)ASSETSCash

$
44,070


$
92,464Accounts receivable


37,930



16,583Total Current Assets


82,000



109,047Other assets:Investment in Oil and Gas properties


274,431



300,080Saltwater Disposal Facility, net of accumulated depreciation


1,950,643



1,825,422Total Other Assets


2,225,074



2,125,502TOTAL ASSETS

$
2,307,074


$
2,234,549LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)Current liabilities:Accounts payable and accrued expenses

$
473,944


$
302,484Current portion of long term debt


94,300



95,967Total Current Liabilities


568,244



398,451Long-term liabilities:


Notes Payable, net of discount of $381,203 and $365,918 at December 31, 2012 and March 31, 2012, respectively


1,407,663



1,163,660Derivative liability


419,579



509,628Total Long-term Liabilities


1,827,242



1,673,288Total Liabilities


2,395,486



2,071,739STOCKHOLDERS’ EQUITY:Common stock: 500,000,000 shares authorized, at $0.001 par value; 43,476,197   shares issued and outstanding at December 31, 2012; 42,894,561 shares issued and outstanding at March 31, 2012


43,476



42,894Capital in excess of par value


2,032,745



1,913,327Accumulated Deficit


(2,164,633
)


(1,793,411
)Total Stockholders’ Equity (Deficit)


(88,412
)


162,810TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

$
2,307,074


$
2,234,549







The accompanying notes are an integral part of these consolidated financial statements.





4


IMPERIAL RESOURCES, INC. AND SUBSIDIARIES


CONSOLIDATED STATEMENT OF OPERATIONS


For the three months and nine months ended December 31, 2012 and 2011


(Unaudited)




Three Months ended


Three Months ended


Nine Months ended


Nine Months endedDecember 31, 2012


December 31, 2011


December 31, 2012


December 31, 2011Operating Revenue:Natural Gas and condensate

$
26,458


$
11,828


$
50,025


$
59,759Salt water disposal


32,947



-



32,947



-Total Revenue


59,405



11,828



82,972



59,759Operating Expenses:Lease operating costs


(41,184
)


6,506



(32,557
)


16,287Salt water disposal operating costs


30,332







30,332Depletion


13,881



5,407



29,135



16,643Depreciation


37,975



37,976



146,111



78,333Accounting and audit


17,782



22,559



88,822



128,463Director’s Fees


36,000



45,000



90,000



90,000Other administrative expenses


146,419



21,448



177,041



51,402Total Operating Expenses


241,205



138,896



528,884



381,128-Loss from operations


(181,800
)


(127,068
)


(445,912
)


(321,369
)Other Income and (Expenses):Interest income (expense)


85,741



(85,894
)


(112,415
)


(142,456
)Gain (loss) on derivative liability


(90,817
)


-



187,405



0


Total Other Income (Expenses)


(5,076
)


(85,894
)


74,990



(142,456
)Net Loss before extraordinary item


(186,876
)


(212,962
)


(370,922
)


(463,825
)Extraordinary loss due to fire


-



-



-



(157,562
)NET LOSS

$
(186,876
)

$
(212,962
)

$
(370,922
)

$
(621,387
)NET LOSS PER COMMON SHAREBasic and diluted

$
(0.00
)

$
(0.00
)

$
(0.01
)

$
(0.01
)WEIGHTED AVERAGE OUTSTANDING SHARESBasic and diluted


43,476,197



42,894,561



43,200,925



42,704,811




The accompanying notes are an integral part of these consolidated financial statements.


5


IMPERIAL RESOURCES, INC. AND SUBSIDIARIES


CONSOLIDATED STATEMENT OF CASH FLOWS


For the nine months ended December 31, 2012 and 2011


(Unaudited)


The accompanying notes are an integral part of these consolidated financial statements




Nine Months ended


Nine Months endedDecember 31, 2012


December 31, 2011CASH FLOWS FROM OPERATING ACTIVITIES:Net loss

$
(371,222
)

$
(621,387
)Add back Extraordinary Loss






157,562Net loss before extraordinary loss


(371,222
)


(463,825
)Adjustments to reconcile net loss to net cash (used in) operating activities:Depletion and depreciation expense


148,518



94,976Discount amortization


82,065



20,635Gain (loss) on derivative liability


(187,405
)Changes in operating assets and liabilities:Changes in accounts receivable


(21,347
)


22,211Changes in accounts payable


171,460



468,958Net Cash Provided (Used) by Operations


(177,931
)


142,955CASH FLOWS FROM INVESTING ACTIVITIES:Purchase of salt water facility


-



(50,000
)Purchase of salt water equipment and deepening well


-



(1,466,453
)Investments in oil and gas properties


(248,090
)


(238,173
)Net Cash Used by Investing Activities


(248,090
)


(1,754,626
)CASH FLOWS FROM FINANCING ACTIVITIES:Loans from related parties






150,000Proceeds from notes payable for salt water facility


320,000



1,200,000Repayment of notes payable


(62,373
)


(59,268
)Proceeds from issuance of common stock


120,000Net Cash Provided by Financing Activities


377,627



1,290,732Net Decrease in Cash


(48,394
)


(320,938
)Cash at Beginning of Period


92,464



364,891CASH AT END OF PERIOD

$
44,070


$
43,953Supplemental disclosures:


Cash paid for interest

$
13,015


$
32,010Purchase of salt water disposal facility through issuance of note payable

$
-


$
450,000Debt discount on convertible note payable

$
89,111


$
-


The accompanying notes are an integral part of these consolidated financial statements


6





IMPERIAL RESOURCES, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


December 31, 2012


(Unaudited)





1.
ORGANIZATION AND BASIS OF PRESENTATION





Imperial Resources, Inc. (“the Company”) is engaged in the exploration and development of oil and natural gas properties. The Company acquires the oil and gas interests in various manners, by purchasing them or via a farm-in whereby we earn our interests by developing the acreage of another. The Company acquires fee simple determinable interests in the oil and gas properties in either acquisition scenario. In addition, the Company has purchased a salt water disposal facility.





The Company was incorporated under the laws of the State of Nevada on August 2, 2007, with the authorized capital stock of 500,000,000 shares at $0.001 par value.





The Company was organized for the purpose of acquiring and exploring a mineral property and later abandoned it. The Company has decided to focus its core activities on development and exploration of oil and gas assets in the United States through its wholly-owned subsidiary Imperial Oil & Gas Inc. (“Imperial Oil” or “IOG”) which was formed under the laws of the State of Delaware on January 8, 2010. Big Dig Operating, Inc., (“Big Dig”) was formed June 13, 2011 for the purpose of operating a salt water disposal facility, and is a wholly owned subsidiary of Imperial Oil & Gas, Inc. In addition, Green Tide Water Disposal, Ltd. (“Green Tide”) was formed on June 15, 2011, as a limited partnership with Imperial Oil and Gas, Inc. owning a 99% limited partnership interest, and Big Dig owning a 1% general partnership interest. Green Tide has obtained a promissory note, the funds from which shall be applied solely for the purpose of bringing the salt water disposal facility back in to commercial operations, servicing associated liabilities existing at time and marketing services of the facility.





The Company has to date engaged in the exploration and development of oil and natural gas properties of others under arrangements in which we finance the costs in exchange for interests in the oil or natural gas revenue generated by the properties. Such arrangements are commonly referred to as farm-ins to us, or farm-outs by the property owners farming out to us.





On April 27, 2011, the Company purchased a salt water disposal facility. The Company has deepened the facility disposal well to a depth currently approved by the Texas Railroad Commission, has opened the facility in September 2012   and is disposing of produced  salt water from third party operating wells in the area.





In the opinion of management, all adjustments (consisting solely of normal recurring adjustments) necessary to present fairly the financial position, results of operations, and cash flows for all periods presented have been made. The information for the consolidated balance sheet as of March 31, 2012 was derived from audited financial statements. The results of operations for the nine months ended December 31, 2012 are not necessarily indicative of the results to be expected for the year ending March 31, 2013.





2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





The consolidated financial statements included herein, presented in accordance with accounting principles generally accepted in the United States of America and stated in US dollars, have been prepared by the Company, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”).





(a)
Basis of Consolidation





The accompanying financial statements present the consolidated accounts of the Company and its subsidiaries. All intercompany account balances and transactions have been eliminated.





(b)
Nature of Operations





The Company’s focus is on the acquisition, development and exploitation of long-lived oil and natural gas reserves and, to a lesser extent, exploration for new oil and natural gas reserves. The Company’s business activities are currently carried out in  Oklahoma and Texas.





(c)
Concentrations





Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of unsecured accounts receivable from unaffiliated crude oil purchasers and the well operator. All of the Company's revenues are from one producing well, a successful test well and a salt water disposal facility.




7


IMPERIAL RESOURCES, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 December 31, 2012
 (Unaudited)


(d)
Investments in Oil and Gas Properties




Oil and natural gas properties:


We use the successful efforts method of accounting for exploration and evaluation expenditure in respect of each area of interest. The application of this policy necessarily requires management to make certain estimates and assumptions as to future events and circumstances, in particular the assessment of whether economic quantities of reserves have been found. Any such estimates and assumptions may change as new information becomes available.





Exploration Expenses:


We account for our oil and gas exploration and development costs using the successful efforts method. Geological and geophysical costs are expensed as incurred. Exploratory well costs are capitalized pending further evaluation of whether economically recoverable reserves have been found. If economically recoverable reserves are not found, exploratory well costs are expensed as dry holes. All exploratory wells are evaluated for economic viability within one year of well completion. Exploratory wells which discover potentially economic reserves that are in areas where a major capital expenditure would be required before production could begin, and where the economic viability of that major capital expenditure depends upon the successful completion of further exploratory work in the area, remain capitalized as long as the additional exploratory work is under way or firmly planned. The application of the successful efforts method of accounting requires management's judgment to determine the proper designation of wells as either developmental or exploratory, which will ultimately determine the proper accounting treatment of costs of dry holes. Once a well is drilled, the determination that economic proved reserves have been discovered may take considerable time and judgment. The evaluation of oil and gas leasehold acquisition costs included in unproved properties requires management's judgment to estimate the fair value of such properties.





Impairment:


We review our long-lived assets, consisting primarily of oil and gas properties, on a quarterly basis and whenever management determines that events or circumstances indicate that the recorded carrying value of such properties may not be recoverable. Proved oil and gas properties are reviewed for impairment on a field-by-field basis, which is the lowest level at which depletion of proved properties is calculated. We estimate the expected future cash flows of our proved oil and gas properties and compare these undiscounted future cash flows to the carrying amount of the properties to test the carrying amount for recoverability. If the carrying amount exceeds the estimated undiscounted future cash flows, we will adjust the carrying amount of the proved oil and gas properties to fair value. The factors used to determine fair value include, but are not limited to, the present value of future cash flows net of estimated operating and development costs using estimates of reserves, future commodity pricing, future production estimates, anticipated capital expenditures and various discount rates commensurate with the risk associated with realizing the projected cash flows.




Reserves Estimates:


It should not be assumed that the present value of future net cash flows included in this Quarterly Report as of December 31, 2012 is the current market value of our estimated proved reserves. Changes in crude oil and natural gas prices can cause revisions in our estimates if the sales price on which reserves are based makes it uneconomical to continue producing the reserves based on our current production costs. Estimates of proved reserves may materially impact depletion expense. If the estimates of proved reserves decline, the rate at which we record depletion expense will increase, reducing future net income. Such a decline may result from lower market prices, which may make it uneconomical to drill for and produce higher cost fields. In addition, a decline in proved reserve estimates may impact the outcome of our assessment of our producing oil and gas properties for impairment.





Depletion:


Depletion of the cost of proved oil and gas properties are calculated using the unit–of–production method. The reserve base used to calculate depletion, depreciation or amortization is the sum of proved developed reserves and proved undeveloped reserves for leasehold acquisition costs and the cost to acquire proved properties. With respect to lease and well equipment costs, which include development costs and successful exploration drilling costs, the reserve base includes only proved developed reserves. Estimated future dismantlement, restoration and abandonment costs, net of salvage values, are taken into account





Amortization rates of depletion are updated to reflect: 1) the addition of capital costs, 2) reserve revisions (upwards or downwards) and additions, 3) property acquisitions and/or property dispositions, and 4) impairments.





Property and Equipment-Salt Water Disposal Facility:





Property plant and equipment is recorded at its original cost of construction or fair value of assets purchased. Expenditures that extend the useful life or increase the expected output of property, plant and equipment, as well as major improvements are capitalized. Repair and maintenance costs are expensed as incurred.





8


IMPERIAL RESOURCES, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 December 31, 2012
 (Unaudited)





Depreciation is computed using the following estimated useful lives:




Disposal wells
10 yearsMachinery and equipment
7 years





Upon retirement or disposition of assets other than oil and natural gas properties, the cost and related accumulated depreciation are removed from the accounts with the resulting gains or losses, if any, recognized in income. Depreciation of other property and equipment is computed using the straight-line method based on the estimated useful lives of the property and equipment.





(e)
Impairment of Long-Lived Assets:


The Company reviews and evaluates long-term assets for impairment when events or changes in circumstances indicate that the related carrying amounts may not be recoverable. The assets are subject to impairment consideration under ASC 60-10-35-17 if events or circumstances indicate that their carrying amount might not be recoverable. When the Company determines that an impairment analysis should be done, the analysis will be performed using the rules of ASC 930-360-35 Asset Impairment, and 360-10-15-3 through 15-5, Impairment or Disposal of Long-Term Assets.





(f)
Income Taxes


We follow the FASB’s new guidance issued within ASC Topic No. 740, Accounting for Income Taxes, for recording the provision for income taxes. Deferred tax assets and liabilities are computed based upon the difference between the financial statement and income tax basis of assets and liabilities using the enacted marginal tax rate applicable when the related asset or liability is expected to be realized or settled. Deferred income tax expenses or benefits are based on the changes in the asset or liability each period. If available evidence suggests that it is more likely than not that some portion or all of the deferred tax assets will not be realized, a valuation allowance is required to reduce the deferred tax assets to the amount that is more likely than not to be realized. Future changes in such valuation allowance are included in the provision for deferred income taxes in the period of change. Deferred income taxes may arise from temporary differences resulting from income and expense items reported for financial accounting and tax purposes in different periods. Deferred taxes are classified as current or non-current, depending on the classification of assets and liabilities to which they relate. Deferred taxes arising from temporary differences that are not related to an asset or liability are classified as current or non-current depending on the periods in which the temporary differences are expected to reverse.





(g)
Basic and Diluted Net Loss Per Share


Net loss per share is presented in accordance FASB ASC Topic No. 260 Earnings Per Share. Basic net loss per share is computed based on the weighted average shares of common stock outstanding for the period. There are no potentially dilutive common stock equivalents such as stock options or warrants outstanding, and as such basic and diluted net loss per share is the same.





(h)
Use of Estimates in the Preparation of Consolidated Financial Statements


Preparation of the accompanying consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.





(i)
Fair value of financial instruments


The Company calculates the fair value of its assets and liabilities which qualify as financial instruments and includes this additional information in the notes to consolidated financial statements when the fair value is different than the carrying value of these financial instruments. The estimated fair value of accounts receivable, accounts payable and accrued liabilities approximate their carrying amounts due to the relatively short maturity of these instruments. None of these instruments are held for trading purposes. The carrying amounts and fair values for Convertible debt are presented in the following Notes.





ASC Topic 820, Fair Value Measurements and Disclosures, defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles, and requires certain disclosures about fair value measurements. In general, fair values of financial instruments are based upon quoted market prices, where available (Level 1). If such quoted market prices are not available, fair value is based upon internally developed models that primarily use, as inputs, observable market-based parameters (Level 2). Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. These adjustments may include amounts to reflect counterparty credit quality and the customer’s creditworthiness, among other things, as well as unobservable parameters (Level 3). Any such valuation adjustments are applied consistently over time.




9


IMPERIAL RESOURCES, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 December 31, 2012
 (Unaudited)


(j)
Derivative Instruments


The Company does not use derivative financial instruments to hedge exposures to cash-flow or market risks. However, certain other financial instruments with embedded conversion features of debt that are not considered indexed to the Company’s common stock are classified as liabilities when either (a) the holder possesses rights to net-cash settlement, (b) physical or net share settlement is not within the control of the Company, or (c) based on its anti-dilutive provisions. In such instances, net-cash settlement is assumed for financial accounting and reporting. Such financial instruments are initially recorded at fair value and subsequently adjusted to fair value at the close of each reporting period. Fair value for option-based derivative financial instruments is determined using the Black-Scholes Option Pricing Model. The gains and losses resulting from changes in the fair value of derivatives are recorded in the Consolidated Statement of Operations.





(k)
Cash Equivalents


For purposes of the consolidated statements of cash flows, the Company considers all demand deposits, money market accounts and certificates of deposit purchased with an original maturity of three months or less to be cash equivalents.





(l)
Revenue Recognition


Oil and natural gas revenues are recorded using the sales method, whereby the Company recognizes oil and natural gas revenue based on the amount of oil and natural gas sold to purchasers. The Company did not have any oil or natural gas imbalances recorded. The Company does not recognize revenues until they are realized or realizable and earned. Revenues are considered realized or realizable and earned when: (i) persuasive evidence of an arrangement exists; (ii) delivery has occurred or services have been rendered; (iii) the seller’s price to the buyer is fixed or determinable; and (iv) collectability is reasonably assured.





(m) Recent Accounting Pronouncements


The Company does not expect the adoption of any recent accounting pronouncements to have a material impact on its financial statements.





3.
OIL AND GAS PROPERTIES





The Company has $274,431  in investments in oil and gas properties as of December 31, 2012  as follows:





March 31, 2012


Additions


Depletion and other reductions (1)


December 31, 2012Producing Wells

$
323,826


$
28,024


$
(40,640
)

$
311,210Accumulated depletion


(96,912
)


-



(13,033
)


(109,945
)Net producing wells


226,914



28,024



(53,673
)


201,265Undeveloped wells


73,166



-



-



73,166Total oil and gas

$
300,080


$
28,024


$
(53,673
)

$
274,431








10




IMPERIAL RESOURCES, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 December 31, 2012
 (Unaudited)


Cochran #1 Well


On January 20, 2010, the Company acquired a 14.9% working interest in the oil, gas and mineral leases in the Greater Garwood hydrocarbon exploration project located in Colorado County, Texas (the “Project”). The Project has one producing well known as the Cochran #1 Well, which is being operated by El Paso E & P Company, L.P. As of December 31, 2012, the investment totaled $210,687.





Oklahoma Project


On July 12, 2010, Imperial Oil entered into a participation agreement, four areas of mutual interest (AMI) agreement and joint operating agreement to acquire leases on up to 5,000 acres in Oklahoma. The agreement provided for a 50% working interest in horizontal oil and gas drilling projects. During the quarter ended June 30, 2012, the Company had incurred $210,770 in acquisition of acreage and a nominal interest in one successful test well.





On January 10, 2012, Imperial Oil sold $190,106 of acreage, including approximately $160,000 acreage cost plus associated land and title costs, acquired during the year, and relinquished any future interest in the 5,000 acres in Oklahoma. Proceeds from the sale totaled $540,000, which resulted in a gain on the sale of investment of $346,184, after selling costs of $3,710. The Company retained its interest in a successful test well which the Company acquired as part of its due diligence. In addition, the Company has the right to acquire new acreage in a new 5,000 acre area of mutual interest (“AMI”) with a 90% working interest and the right to operate. As of December 31, 2012, the Company’s investment in the project totaled $14,664.





Nunnelly #1 Project


On January 10, 2011, the Company entered into an Oil and Gas lease with the mineral owner of approximately 35 acres and an existing wellbore in Montague County Texas. The lease agreement provides for the development of the Project lease area and the existing well, known as Nunnelly #1. The mineral owners’ will retain a 25% royalty interest in the acreage. Imperial has the option, to pay the costs associated with deepening and completion of the well, or alternatively, the drilling and completion of a new well. As of December 31, $63,062 is capitalized relating to surface preparation work at the site.





4.
SALT WATER DISPOSAL FACILITY





On April 27, 2011, Imperial Oil entered into a Purchase and Sale Agreement to purchase approximately 42 acres of land, a related salt water disposal facility (”SWDF”) consisting of surface equipment, and a wellbore and associated permits, located in Wise County, Texas. The total purchase price of $500,000 was made through a $50,000 signing payment, plus the execution of a Convertible Promissory Note totaling $450,000. The note is secured over the SWDF assets, and was convertible subsequent to a six month waiting period.





Green Tide obtained a Convertible Promissory Note on June 17, 2011, for amounts up to $1,200,000 to rework and operate the SWDF. The notes provides that Green Tide will pay interest at a rate of twenty percent per annum with principal and interest paid monthly in amounts equal to eighty percent of the net cash flow generated by the operations of the SWDF, until such time that the cumulative distribution equals the principal amount loaned. The lender may convert at its option, the unpaid balance of the note into limited partner interests in Green Tide of up to 50% of the equity until the opening of the facility.





On March 6, 2012, the Company obtained an additional c note for $125,000 for clean-up and rebuilding of the facility, $50,000 of which was received prior to March 31, 2012.  The remaining $75,000 was received during the first quarter of the fiscal year ended March 31, 2013.








The Company deepened the well to a depth approved by the Texas Railroad Commission. As of December 31, 2012, the Company had incurred $2,213,064  in capitalized costs related to the acquisition of the facility and deepening of the well. The well was deepened and completed and the SWDF was set to open November 9, 2011 when the facility was struck by lightning on November 8, 2011. The Company has completed clean-up of the site and has purchased and largely installed the replacement tanks and equipment. The Company commenced operation of the facility during the quarter ended December 31, 2012.





11


IMPERIAL RESOURCES, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 December 31, 2012
 (Unaudited)





The Company’s net investment as of December 31, 2012 is as follows:


December 31, 2012Purchase of salt water facility

$
500,000Repairs and improvements


1,713,064Total


2,213,064Accumulated depreciation


(262,421
)Total property and equipment related to salt water facility

$
1,950,643




5.
NOTES PAYABLE





On April 27, 2011 Imperial Oil entered into a Purchase and Sale Agreement to purchase approximately 41 acres of land, a related salt water disposal facility (”SWDF”) consisting of surface equipment, and a wellbore and associated permits, located in Wise County, Texas. The total purchase price of $500,000 was made through a $50,000 signing payment, plus the execution of a Convertible Promissory Note (the “Note”) totaling $450,000. The Note is secured over the SWDF assets.





The note is repayable monthly at $9,529.59 for fifty four months at a 6% fixed interest rate, commencing on September 1, 2011. The outstanding principal balance plus any accrued interest under the Note was convertible into common shares six months after execution of the agreement upon the option of the Holder. The Note was convertible into the number of shares equal to the balance of the principal and interest being converted divided by a 15% discount to the daily volume weighted average price per share for the ten business days prior to the date of the conversion notice. The note is secured over the SWDF assets, and was convertible subsequent to a six month waiting period. In addition, the conversion is limited to at least $25,000 in principal and accrued unpaid interest with a maximum of $75,000 in any one calendar month.





The above embedded conversion feature was determined to be a derivative liability, and such financial instruments are initially recorded at fair value and subsequently adjusted to fair value at the close of each reporting period. The fair value was determined using the Black-Scholes Option Pricing Model using the following assumptions at each measurement date: risk-free interest rates ranging from .96% to 2.06%; expected life of 3.33 to 4.25 years; and expected volatility of 166% based on historical stock prices of the Company. The gains and losses resulting from changes in the fair value of derivatives are recorded in the Consolidated Statement of Operations.





The fair value of the derivative liability at April 27, 2012 was $623,510. The fair value as of December 31, 2012 was $339,116. The Company has categorized its derivative liability measured at fair value into the three-level fair value hierarchy based upon the priority of inputs to respective valuation techniques. Liabilities included within level 3 of the fair value hierarchy include a share conversion feature on convertible debt. The valuation methodology for liabilities within level 3 uses a combination of observable and unobservable inputs in calculating fair value. The debt discount related to the derivative totaled $450,000 at April 27, 2012, and was $313,167  as of December 31, 2012. Amortization totaled $50,659  for the three months ended December 31, 2012.





On June 15, 2011, the Green Tide Water Disposal, Ltd., was formed as a limited partnership with Imperial Oil & Gas, Inc. being a limited partner owning 99% and Big Dig Operating, Inc., a wholly owned subsidiary of Imperial Oil & Gas, Inc., being the general partner and owning 1%, and obtained a Convertible Promissory Note on June 17, 2011, for amounts up to $1,200,000 to rework and operate the SWDF. The notes provides that Green Tide will pay interest at a rate of twenty percent per annum with principal and interest paid monthly in amounts equal to eighty percent of the net cash flow generated by the operations of the SWDF, until such time that the cumulative distribution equals the principal amount loaned. The lender may convert at its option, the unpaid balance of the $1,200,000 note into limited partner interests in Green Tide of up to 50% of the equity, until the facility officially opens. There was determined to be no beneficial conversion feature at the date of the note.





In addition to the above note, additional non-convertible notes of $125,000, $50,000, $60,000, $20,000 and $20,000 with the same terms were obtained for replacement and clean up of the facility. As of December 31, 2012, a total of $275,000 had been received related to these non-convertible notes.





12


IMPERIAL RESOURCES, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 December 31, 2012
 (Unaudited)





On October 5, 2012, the Company entered into a convertible note in the amount of $58,000, payable to an accredited investor, bearing interest at 8%, due July 10, 2013. The Note was convertible into the number of shares equal to the balance of the principal and interest being converted divided by a 42% discount to the daily volume weighted average price per share for the ten business days prior to the date of the conversion notice.  On November 13, 2012, the Company entered into another note to the same investor on the same terms, in the amount of $42,500, due August 15, 2013. Net proceeds from these borrowings were $95,000, after deducting borrowing costs of $5,500. The above embedded conversion feature was determined to be a derivative liability, and such financial instruments are initially recorded at fair value and subsequently adjusted to fair value at the close of each reporting period. The fair value was determined using the Black-Scholes Option Pricing Model using the following assumptions at each measurement date: risk-free interest rates ranging from .18%; expected life of 9 months; and expected volatility of 120% to 130%based on historical stock prices of the Company. Due to the convertible feature, discounts of $89,111 and derivative liabilities of $97,386 were recorded at the time the borrowings were drawn upon. During the three months ended December 31, 2012, a gain on the derivative liability of $16,893 was recorded in results of operations.





Interest expense for the three months ended December 31, 2012 was $112,415.  Accrued interest payable totaled $297,062 and is included in accounts payable and other accrued liability.





Notes payable and derivative liabilities are summarized as follows:





Description

AmountConvertible notes payable

$
1,608,542Other borrowings


275,000Total borrowings


1,883,542Less Current Portion


(94,300
)Less debt discount


(381,203
)Derivative liability


419,579Long term liabilities as of December 31, 2012

$
1,827,618




6.
CAPITAL STOCK





On October 31, 2007, Company completed a private placement consisting of 198,000,000 post dividend common shares sold to directors and officers for a total consideration of $3,000. On December 31, 2007, the Company completed a private placement of 49,665,000 post dividend common shares for a total consideration of $37,625. On November 3, 2009, the Company issued a stock dividend to shareholders of record whereby the Company issued sixty-five shares of its common stock for each share of common stock held by such investors (all share references in these consolidated financial statements have been retroactively adjusted for this stock dividend). On October 22, 2009, 168,300,000 post dividend common shares were returned to Treasury and cancelled, and on January 27, 2010, a further 29,465,000 post dividend common shares were returned to Treasury and cancelled, leaving an outstanding balance at March 31, 2011 of 49,900,000 common shares. On April 29, 2010, a stockholder of the Company returned 9,900,000 shares of the Company’s common stock to treasury for cancellation. As a result, the number of shares of the Company’s common stock outstanding was reduced from 49,900,000 to 40,000,000.





The Greater Garwood Project was acquired from the issuance of a $900,000 note payable. On December 10, 2010, the note payable of $900,000 plus $42,534 in accrued interest was converted to 1,625,059 shares of the Company’s common stock at $0.58 per share. The fair value of the shares on the date of exchange was $1,218,794, resulting in a loss on debt extinguishment of $276,260, which is included in other expenses in the Statement of Operations.





On December 10, 2010 Imperial Resources, Inc. (the “Company”) and its wholly owned subsidiary, Imperial Oil and Gas, Inc. (“IOG”) entered into a Note Conversion Agreement (“the “Agreement”) with Coach Capital LLC (“Coach) relating to a Loan Note (“Note”) from Coach to IOG dated January 19, 2010. At December 10, 2010, the debt under the Note was $900,000 in principal and $42,534 in accrued interest, totaling $942,534. On December 10, 2010, under the Agreement, Coach served a valid notice on the Company to fully convert the Note. Accordingly Coach has been issued 1,625,059 shares of the Company’s common stock. The Note and its terms are cancelled.




13


IMPERIAL RESOURCES, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 December 31, 2012
 (Unaudited)





On December 31, 2010, Imperial entered into a Securities Purchase Agreement with an accredited investor. This Agreement provided that in the Investor’s sole discretion that, in addition to the first subscription of $500,000, it could subscribe for shares of the Company’s common stock until March 31, 2012, from a minimum subscription amount of $500,000 to a maximum subscription amount of $2,500,000, to be priced at a 15% discount to the Volume Weighted Average closing Price (“VWAP”) for the ten business days prior to the date of each subscription or the price of $0.6784 per share, whichever was greater. The total subscription price of $500,000 (“First Subscription”) was paid in cash within fourteen days of the Agreement. No commission or other fee is payable. We issued all of the shares to one (1) U.S. person under the exemption from registration afforded by Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”), and Rule 506 of Regulation D as promulgated by the United States Securities and Exchange Commission under the Securities Act.





On July 8, 2011 Imperial Resources, Inc., pursuant to the Securities Purchase Agreement with an accredited investor dated December 31, 2010, entered into a second Securities Purchase Agreement with the accredited investor, by reducing the minimum subscription amount to $100,000 and then subscribing $150,000 for 532,461 shares of common stock at a 10% discount to the Volume Weighted Average closing Price for the ten business days prior to the Agreement, this being a price of $0.2817 per share, as mutually agreed between the Company and the accredited investor.





On April 16, 2012, Imperial Resources, Inc., pursuant to a Securities Purchase Agreement with an accredited investor issued 75,153 common shares for $20,000 at a 10% discount to the Volume Weighted Average closing Price for the ten business days prior to the Agreement, this being a price of $0.26 per share. Additionally, in August 2012,  the Company completed another private placement with an accredited investor by issuing 506,483  common shares for $100,000, at a 10% discount to the Volume Weighted Average closing Price for the ten business days prior to the Agreement, this price being $.20 per share.





7.
INCOME TAXES





At December 31, 2012, the Company has accumulated operating losses totaling $2,164,633. The net operating loss carry forwards will begin to expire in 2027 if not utilized. The Company has recorded net operating losses in each year since its inception. Based upon all available objective evidence, including the Company’s loss history, management believes it is more likely than not that the net deferred assets will not be fully realized. Therefore, the Company has provided a valuation allowance against its deferred tax assets as of December 31, 2012.





8.
SIGNIFICANT TRANSACTIONS WITH RELATED PARTY





Sydney Oil and Gas Overriding Royalty Interest





On April 1, 2010, Imperial Oil entered into an Assignment of Overriding Royalty Interest Agreement to assign or pay Sydney Oil & Gas, LLC (“Sydney”), a gross overriding royalty of 6.5% of 8/8 for each lease or working interest acquired by Imperial Oil. Imperial’s CEO owns an interest in and controls Sydney. At December 31, 2012 no royalties have been paid.





9.
GOING CONCERN





The Company intends to seek business opportunities that will provide a profit. However, the Company does not have the working capital necessary to be successful in this effort and to service its debt, which raises substantial doubt about its ability to continue as a going concern.





Continuation of the Company as a going concern is dependent upon obtaining additional working capital and the management of the Company has developed a strategy, which it believes will accomplish this objective through additional loans and equity funding, which will enable the Company to operate for the coming year.




14




ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS





CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS





This Quarterly Report on Form 10-Q and the exhibits attached hereto contain certain statements that constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements concern our anticipated results and developments in our operations in future periods, planned exploration and development of our properties, plans related to our business and matters that may occur in the future. These statements relate to analyses and other information that are based on forecasts of future results, estimates of amounts not yet determinable and assumptions of management.





Any statements that express or involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions or future events or performance (often, but not always, using words or phrases such as “expects” or “does not expect”, “is expected”, “anticipates” or “does not anticipate”, “plans”, “estimates” or “intends”, or stating that certain actions, events or results “may”, “could”, “would”, “might” or “will” be taken, occur or be achieved) are not statements of historical fact and may be forward-looking statements. Forward-looking statements are subject to a variety of known and unknown risks, uncertainties and other factors which could cause actual events or results to differ from those expressed or implied by the forward-looking statements, including, without limitation:





●
risks related to our limited operating history; including security and conversion arrangements over Notes payable;





●
risks related to our financing and development activities;





●
risks related to the historical losses and expected losses in the future;





●
risks related to our dependence on our executive officers;





●
risks related to fluctuations in oil and natural gas prices, and the price for salt water disposal;





●
risks related to exploratory activities, drilling for and producing oil and natural gas, and the drilling of salt water disposal wells;





●
risks related to the operation of salt water disposal facilities;





●
risks related to liability claims from oil and gas, and salt water disposal operations;





●
risks related to accessing the oil and natural gas, and salt water disposal markets;





●
risks related to the statutory regulation of the drilling for and producing of oil and natural gas, and the disposal of salt water;





●
risks related to legal and reporting compliance costs and the ongoing accreditation of our auditors by the PCAOB;





●
risks related to the unavailability of drilling equipment and supplies;





●
risks related to competition in the oil and natural gas industry, including the disposal of salt water;





●
risks related to period to period comparison of our financial results;





●
risks related to our securities and the general public markets;





●
risks related to our ability to raise capital or enter into joint venture or working interest arrangements on acceptable terms.




15





We qualify all the forward-looking statements contained in this Quarterly Report by the foregoing cautionary statements.





Overview and Plan of Operation





Producing Wells





Cochran #1 Well





On January 20, 2010, the Company acquired a 14.9% working interest in the oil, gas and mineral leases in the Greater Garwood hydrocarbon exploration project located in Colorado County, Texas (the “Project”). The Project included one producing well known as the Cochran #1 Well. The well-produced and sold approximately 3.8 Mmcfe, net during the three months ended June 30, 2012. Remaining natural gas reserves are estimated to be approximately 181 mmcfe as of June 30, 2012. Approximately 89% of natural gas revenues for the nine months ended December 31, 2012 and all revenues from 2011 are from the Cochran Well. As of December 31, 2012, the investment totaled $210,687.





Exploratory Wells





Nunnelly #1 Project





On January 10, 2011, the Company entered into an Oil and Gas lease (“Agreement”) with the mineral owner of approximately 35 acres and an existing wellbore in Montague County Texas. The Agreement provides for the development of the Project lease area and the existing well, known as Nunnelly #1. The mineral owners’ will retain a 25% royalty interest in the acreage. The Company obtained an evaluation from an independent registered petroleum engineer indicating net probable recoverable oil reserves of approximately 17 Mbbls. As of December 31, $63,062 is capitalized relating to surface preparation work at the site.





Oklahoma Project





On July 12, 2010, Imperial Oil entered into a participation agreement, four areas of mutual interest (AMI) agreement and joint operating agreement to acquire leases on up to 5,000 acres in Oklahoma. The agreement provided for a 50% working interest in horizontal oil and gas drilling projects. For the year ended March 31, 2012, the Company had incurred $210,770 in acquisition of acreage and a nominal interest in one successful test well.


On January 10, 2012, Imperial Oil sold all of its acreage which had cost the Company $190,106 to acquire during 2011; approximately $160,000 acreage cost plus associated land and title costs, and relinquished any future interest in the 5,000 acres in Oklahoma. Proceeds from the sale totaled $540,000, which resulted in a gain on the sale of investment of $346,184, after selling costs of $3,710. The Company acquired an interest in a test well as part of its due diligence in Oklahoma. The Company retains its interest in this successful test well. In addition, the Company has the right to acquire new acreage in a new area of mutual interest (“AMI”) with a 90% working interest and the right to operate. As of December 31, 2012, the Company’s investment in the project totaled $14,664, which includes the unamortized balance of the successful test well of $4,560.





On January 10, 2012, Imperial Oil sold $190,106 of acreage, including approximately $160,000 acreage cost plus associated land and title costs, acquired during the year, and relinquished any interest in the 5,000 acres in Oklahoma. The Company acquired an interest in a test well as part of its due diligence. That test well proved successful and the Company has retained that interest. In addition, the Company has the right to acquire new acreage in a new area of mutual interest (“AMI”) with a 90% working interest and the right to operate. As of December 31, 2012, the Company’s investment in the project totaled $11,664.





Salt Water Disposal Facility





On April 27, 2011, Imperial Oil entered into a Purchase and Sale Agreement to purchase approximately 41 acres of land, a related salt water disposal facility (”SWDF”) consisting of surface equipment, and a wellbore and associated permits, located in Wise County, Texas. The total purchase price of $500,000 was made through a $50,000 signing payment, plus the execution of a Convertible Promissory Note totaling $450,000. The note is secured over the SWDF assets, and was convertible subsequent to a six month waiting period.





Green Tide obtained a Convertible Promissory Note on June 17, 2011, for amounts up to $1,200,000 to rework and operate the SWDF. In addition to the above note three additional notes of $125,000, $50,000,  $60,000 and $20,000 with the same terms were obtained for replacement and clean up of the facility.  As of December 31, 2012, $1,435,000 had been received related to these notes.





16





The note provides that Green Tide will pay interest at a rate of twenty percent per annum with principal and interest paid monthly in amounts equal to eighty percent of the net cash flow generated by the operations of the SWDF, until such time that the cumulative distribution equals the principal amount loaned. The lender may convert at its option, the unpaid balance of the note into limited partner interests in Green Tide of up to 50% of the equity until the opening of the facility.





The Company deepened the well to a depth currently approved by the Texas Railroad Commission. As of September 30, 2012, the Company has incurred $2,119,082 in capitalized costs related to the acquisition of the facility and deepening of the well. The well was deepened and completed and the SWDF was set to open November 9, 2011 when the facility was struck by lightning on November 8, 2011. The Company has completed clean-up of the site and has purchased and largely installed the replacement tanks and equipment. The Company commenced operation  of the facility during the quarter ended December 31, 2012.  Demand for disposal in the area continues to be very strong.





The Company’s net investment as of December 31, 2012 is as follows:





December 31, 2012Purchase of salt water facility

$
500,000Additions to well


1,713,064Total


2,213,064Accumulated depreciation


(262,421
)Total property and equipment related to salt water facility

$
1,950,643




The SWDF is located in the heart of the Barnett Shale, the largest gas play by number of wells, in Texas. The SWDF is conveniently located for the disposal of large volumes of salt water generated from essential fracture (“frac”) stimulation operations on Barnett Shale gas wells, some of which have been frac’ed up to four times. There are approximately 6,000 wells within 20 miles of the Facility. Disposal rates in the area range from approximately $0.35 to $0.60 per barrel of water, even at less attractive, generally more distant facilities. In addition to disposal revenues the Company expects to benefit from materially additional revenues generated by the facility from the recovery and re-sale of oil contained in frac water.





The deepening of the well has successfully found one of the major lost circulation zones containing high porosity strands targeted in the Ellenburger formation, ideal for the planned disposal volumes of water, and the well is now at the final total depth. The Ellenburger is the favored formation for disposal purposes in this part of Texas as it is separated by thousands of feet of rock from any fresh water bearing formations. The Ellenburger is a thick formation more than 2,000 feet thick in the subject location capable of sustaining constant input of huge amounts of disposal water without contamination risk to other oil and gas producing formations or ground water. The Company has a perpetual license to dispose of 15,000 barrels of contaminated water per day with a strong possibility to increase its permit to 30,000 per day after a satisfactory period of operations.






17





Comparison of Fiscal nine months ended December 31, 2012 and 2011, respectively:


Nine Months Ended


Nine Months Ended


IncreaseDecember 31, 2012


December 31, 2011


(Decrease)Operating Revenue:Natural Gas and condensate

$
50,025


$
59,759


$
(9,734
)Salt water disposal


32,947



-



32,947Total Revenue


82,972



59,759



23,213-Operating Expenses:










-Lease operating costs


(32,557
)


16,287



(48,844
)Salt water disposal operating costs


30,332







30,332Depletion


29,135



16,643



12,492Depreciation


146,111



78,333



67,778Accounting and audit


88,822



128,463



(39,641
)Director’s Fees


90,000



90,000



-Other administrative expenses


177,041



51,402



125,639Total Operating Expenses


528,884



381,128



148,056-Loss from operations


(445,912
)  )


(321,369
)


124,543Other Income and (Expenses):Interest expense


(112,415
)


(142,456
)


30,041Gain on derivative liability


187,405



-



187,405Total Other Income (Expenses)


74,990
)


(142,456
)


217,446Net Loss before extraordinary item


(370,922
)


(463,825
)


92,903Extraordinary loss due to fire


-



(157,562
)


(157,562
)NET LOSS

$
(370,922
)

$
(621,387
)

$
250,465








18





The decrease in natural gas revenues was primarily a result of continued depressed natural gas prices for 2012 as compared to the same period in 2011 as well as what is believed to be a continued scaling problem with the Cochran #1 well, which requires a regular maintenance procedure yet to be scheduled by the operator of the well. However, the commencement of operations for the salt water disposal well during the quarter ended December 31, 2012 gave rise to the new salt water disposal revenues.





During the three months ended December 31, 2012, the Company completed negotiations over disputed joint interest billing charges from the operator of the Cochran #1 well, resulting in refunds of $46,837 to the Company, which in turn resulted in negative Lease Operating Expense for the quarter.





Depreciation expense totaling $146,111 was incurred for the salt water disposal facility for the nine months ended December 31, 2012 as compared to $78,333 for the nine months ended December 31, 2011.





Accounting fees, professional fees and other general and administrative expenses all decreased over the comparable period as a result of management continuing to operate with very limited administrative support.





Interest expense increased for the nine months ended December 31, 2012 over the comparable period as a result of increased borrowings related to the salt water disposal facility acquisition and development.





The gains and losses on derivative liability were also related to the salt water disposal facility borrowings, which were not incurred for the nine months ended December 31, 2011.





Liquidity and Capital Resources





We reported total current assets of $82,000 as of December 31, 2012, consisting of accounts receivable and cash. Current liabilities of $568,244 related primarily to vendor payables of $473,944 and current portion of long term notes totaling $94,300. Stockholders’ deficit was ($88,412) at December 31, 2012.





For the nine months ended December 31, 2012, cash used in operating activities was $177,926, compared to cash provided by operations of $142,955  for the nine months ended December 31, 2011. For the same periods we used $248,090 and $1,754,626, respectively, in cash for investment in  oil and gas and the salt water disposal property. We received $440,000 in proceeds from  promissory notes and issuances of common stock for the nine months ended December 31, 2012, compared to $1,350,000 received for the same period in 2011.





On July 8, 2011 Imperial Resources, Inc., pursuant to the Securities Purchase Agreement with an accredited investor dated December 31, 2010, entered into a second Securities Purchase Agreement with this accredited investor, it subscribing $150,000 for 532,461 shares of common stock at a 10% discount to the Volume Weighted Average closing Price for the ten business days prior to the Agreement, this being a price of $0.2817 per share, as mutually agreed between the Company and the accredited investor.





On January 10, 2012, Imperial Oil sold all of its interest in leases obtained as a result of a participation agreement and area of mutual interest (AMI) agreement to acquire leases on up to 5,000 acres in Oklahoma entered into on July 12, 2010. The Company received a cash payment of $540,000 in consideration for the sale of its lease interests and the Company’s release of its interest in the AMI. Concurrent with the sale and as an additional consideration for the sale the Company has, with its partner in the divested AMI, entered into a new AMI covering 144 square miles elsewhere in Oklahoma. The terms of the new AMI provide for the Company to retain a 90% working interest in any properties that are leased in the new AMI.





On April 16, 2012, Imperial Resources, Inc., pursuant to a Securities Purchase Agreement with an accredited investor issued 75,153 common shares for $20,000 at a 10% discount to the Volume Weighted Average closing Price for the ten business days prior to the Agreement, this being a price of $0.26 per share. Additionally, in August 2012 the Company completed another private placement with an accredited investor by issuing 506,483  common shares for $100,000, at a 10% discount to the Volume Weighted Average closing Price for the ten business days prior to the Agreement, this price being $0.20 per share.





On October 5, 2012, the Company entered into a convertible note in the amount of $58,000, payable to an accredited investor, bearing interest at 8%, due July 10, 2013. The Note was convertible into the number of shares equal to the balance of the principal and interest being converted divided by a 42% discount to the daily volume weighted average price per share for the ten business days prior to the date of the conversion notice.  On November 13, 2012, the Company entered into another note to the same investor on the same terms, in the amount of $42,500, due August 15, 2013. Net proceeds from these borrowings were $95,000 after deducting borrowing costs of $5,500. Due to the convertible feature, discounts of $89,111 and derivative liabilities of $97,356 were recorded at the time the borrowings were drawn upon. During the three months ended December 31, 2012, a gain on the derivative liability of $16,893 was recorded in results of operations.





Over the last 9 months the Company has raised capital and debt of approximately $440,000 in difficult capital markets.





19


We funded our operations from equity and debt financing and from our oil and gas revenues. We plan to continue to seek financings, and we believe that this will provide sufficient working capital to fund our operations for at least the next twelve months. This and other exploration activities, increased expenses, additional acquisitions, or other events, may require us to raise a significant amount of capital through equity or debt financings. There can be no assurance that we will be successful in raising additional funds and, if unsuccessful, our plans for expanding operations and business activities may have to be curtailed. Any attempt to raise funds, through debt or equity financing, would likely result in dilution to existing stockholders.





We continue to operate with very limited administrative support, and our current officers and directors continue to be responsible for many duties to preserve our working capital.





Critical Accounting Policies





Use of Estimates in the Preparation of Consolidated Financial Statements





Preparation of the accompanying consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The oil and natural gas reserve estimates, and the related future net cash flows derived from those reserves, are used in the determination of depletion expense and the full cost ceiling test and are inherently imprecise. Actual results could differ from those estimates.





Property and Equipment:





Oil and natural gas properties:


The Company follows the successful efforts method of accounting and will capitalize successful wells and related leasehold costs. Acquisition costs for proved and unproved properties are capitalized when incurred. Exploration costs, including geological and geophysical costs, the costs of carrying and retaining unproved properties and exploratory dry hole costs are expensed. Development costs, including costs to drill and equip development wells and successful exploratory drilling costs to locate proved reserves are capitalized.


These costs are amortized using the unit of production method. Dry hole and related leasehold costs are expensed.





Impairment of Long-Lived Assets:


The Company reviews and evaluates long-term assets for impairment when events or changes in circumstances indicate that the related carrying amounts may not be recoverable. The assets are subject to impairment consideration under ASC 60-10-35-17 if events or circumstances indicate that their carrying amount might not be recoverable. When the Company determines that an impairment analysis should be done, the analysis will be performed using the rules of ASC 930-360-35 Asset Impairment, and 360-10-15-3 through 15-5, Impairment or Disposal of Long-Term Assets.








Oil and Gas Properties Held For Sale


Non-current assets and disposal groups are classified as held for sale if their carrying amount will be recovered through a sale transaction rather than through continuing use. For this to be the case the asset (or disposal group) must be available for immediate sale in its present condition and its sale must be highly probable. For the sale to be highly probable, (i) the Corporate Executive Board must be committed to a plan to sell the asset, (ii) an active program to locate a buyer and complete the plan must have been initiated, (iii) the asset must be actively marketed for sale at a price that is reasonable in relation to its current fair value, (iv) the sale should be expected to be completed within one year and (v) actions required to complete the plan should indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn. Non-current assets (or disposal groups) classified as held for sale are measured at the lower of the asset’s carrying amount and the fair value less costs to sell. Depreciation or amortization of an asset ceases when it is classified as held for sale.





Fair value of financial instruments





The Company calculates the fair value of its assets and liabilities which qualify as financial instruments and includes this additional information in the notes to consolidated financial statements when the fair value is different than the carrying value of these financial instruments. The estimated fair value of accounts receivable, accounts payable and accrued liabilities approximate their carrying amounts due to the relatively short maturity of these instruments. None of these instruments are held for trading purposes. The carrying amounts and fair values for Convertible debt are presented in the following Notes.





Off-Balance Sheet Arrangements





There are no off-balance sheet arrangements.





20




ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK





Not applicable.





ITEM 4.
CONTROLS AND PROCEDURES





Item 4. - Disclosure Controls and Procedures





Disclosure Controls and Procedures


As of the end of the current reported period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Rules 13a-15 and 15d-15 of the Securities Exchange Act of 1934 (the “Exchange Act”). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are not effective at a reasonable assurance level with respect to the recording, processing, summarizing and reporting, within the time periods specified in the Commission’s rules and forms, of information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act.





Changes in Internal Control over Financial Reporting





During the first quarter of 2011 we  implemented additional controls and procedures designed to ensure that the disclosure provided by us meets the then current requirements of the applicable filing made under the Exchange Act. To address our lack of sufficient accounting technical expertise, during the fourth quarter ended March 31, 2011, we retained additional accounting technical expertise. Other than these there have been no changes in our internal control over financial reporting during the third quarter ended December 31, 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.







PART II – OTHER INFORMATION





ITEM 1.
LEGAL PROCEEDINGS





None.





ITEM 1A.
RISK FACTORS





The description of the risk factors associated with the Company is incorporated into this Item 1A by reference to the description of risk factors set forth under the heading “Risk Factors” in Item 1A of Part I of our annual report on Form 10-K.





ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS





On April 16, 2012, Imperial Resources, Inc., pursuant to a Securities Purchase Agreement with an accredited investor issued 75,153 common shares for $20,000 at a 10% discount to the Volume Weighted Average closing Price for the ten business days prior to the Agreement, this being a price of $0.26 per share. Additionally, in August  the company completed another private placement with an accredited investor by issuing 506,483  common shares for $100,000, at a 10% discount to the Volume Weighted Average closing Price for the ten business days prior to the Agreement , this price being $.20 per share.




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ITEM 3.
DEFAULTS UPON SENIOR SECURITIES





None





ITEM 4.
MINE SAFETY DISCLOSURES





Not applicable.





ITEM 5.
OTHER INFORMATION





None.





ITEM 6.
EXHIBITS





The following exhibits are included as part of this report by reference:


101.CAL
XBRL Taxonomy Extension Calculation Linkbase
*101.DEF
XBRL Taxonomy Extension Definition Linkbase
*101.INS
XBRL Instance Document
*101.LAB
XBRL Taxonomy Extension Label Linkbase
*101.PRE
XBRL Taxonomy Extension Presentation Linkbase
*101.SCH
XBRL Taxonomy Extension Schema
*31.1
Certification of Principal Executive Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Filed herewith31.2
Certification of Principal Financial Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Filed herewith32.1
Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Filed herewith32.2
Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Filed herewith







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SIGNATURES





Pursuant to the requirements of the Securities Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.





IMPERIAL RESOURCES, INC.Date: March 1, 2013
By:
/s/ Rob DurbinRob Durbin

President, Chief Executive Officer and Director

(Principal Executive Officer)Date:  March 1, 2013
By:
/s/ Robert BintliffRobert Bintliff

Chief Financial Officer

(Principal Financial and Accounting Officer)


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